The yin yang of financial reform

Embracing maxims to enable financial stability and healthy financial innovation





After the dust settled from the worldwide financial crisis, most industry participants – consumers, governments, banks and financial markets firms – turned their immediate focus to moving beyond the meltdown and regaining financial health. And as they began to get their heads above water, they commenced seeking long-term solutions to help mitigate the effects of future crises.

In early 2009 the IBM Institute for Business Value published a paper that concentrates both on moving beyond the crisis and, by examining the underlying tensions that lead to it, reshaping the industry to help avoid future calamities. "The yin yang of financial disruption" identities the inherent structural tensions within the global financial system and identifies maxims for progress in the new era.

Now, we revisit the topic of financial disruption to gauge progress in striking a new balance between financial stability and healthy innovation in a currently fragile system. Based on new research, as well as surveys and interviews conducted for the 2010 IBM CEO study, "Capitalizing on Complexity: Insights from the Global Chief Executive Officer Study," this paper acknowledges that some progress has been made.

However, even more important, we focus on the potential unintended consequences of the various financial reforms, as well as current conditions that could further inhibit healthy growth: distraction – due to market uncertainty – from the system's unresolved structural tensions and an absence of trust among financial system participants. These factors are particularly alarming in the context of financial reforms. Unresolved tensions combined with lack of trust could very well result in yet another shadow system in which unhealthy practices outpace healthy innovation.

As in our prior report, we focus on a systemic "yin yang" – or set of opposing forces – that exists between financial stability and healthy financial innovation. This time, we examine it in the context of financial reform and consider some of the tensions that exist in that realm. In addition, we consider the global system's future stewardship and the maxims we believe are essential not only to its stewardship, but also to healthy financial growth.

Why? Because in today's era of global interdependence, striking a healthy, sustainable balance between stability and innovation will require global cooperation to resolve structural tensions and renew trust among the various market participants. It's more important than ever that financial market participants worldwide not only embrace new maxims for progress, but also commit to take action today to change the way they conduct business. Specifically, they should rationalize their portfolio of activities, address areas of operating model weakness and transform destructive organizational cultures.

Download the complete IBM Institute for Business Value study

Meet the authors

  • Suzanne Duncan

    IBM Integrated Supply Chain, Global Execution, System x Engineering (Formerly IBV Financial Markets Industry Leader)

  • Srini Giridhar

    Associate Partner, Global Banking Center of Competency

  • Lynn C. Reyes

    Public sector, IBM Institute for Business Value

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